Asian leaders’ summit confronts downward spiral of events in Europe

The luminous presence of democracy icon
Aung San Suu Kyi
in her first visit abroad in 24 years almost overwhelmed this week’s World Economic Forum on East Asia, even as delegates fretted over the euro zone’s downward spiral.

For once, Burma and its human rights record did not cast a pall over a meeting of ASEAN countries focused on 2014, when the former pariah state will chair the South-East Asian association.

But for all the Suu Kyi-driven euphoria, participants including Indonesian President Susilo Bambang Yudhoyono, Vietnam’s Prime Minister Nguyen Tan Dung, and Australia’s Resources Minister
Martin Ferguson
, were forced to confront the worrying turn of events in Europe.

Speaking to the Weekend Financial Review, Asian Development Bank managing director-general Rajat Nag said the euro-zone crisis would hit the region’s emerging markets more through trade than financial channels.

“Yes, Asia is affected," Mr Nag said at the forum. “Yes, Asia is vulnerable to what happens in Europe.

“Our forecasts for developing Asia of 6.9 per cent growth for this year and 7.3 per cent for next year still stand. But we will have to watch carefully.

“The bottom line is that uncertainty has increased. Over the last few days the tensions in Europe are cause for even greater concern than we had before.

“Fiscal austerity in Europe is almost inevitable because they have huge debts. But on the other hand if growth falters below a point in Europe then their ability to manage this debt also becomes a problem."

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Significantly, the ADB flagged a revision of its more upbeat April assessment of the global liquidity squeeze.

“In light of what’s happening to the Spanish banks and to other financial institutions, we again need to revisit that," Mr Nag said. “The global liquidity crunch is going to be a concern."

“The [euro-zone] crisis seems to have worsened but we don’t think at the moment there is enough reason for us to downgrade our forecast . . . though obviously we will have to watch it very carefully almost on a daily basis."

As Asian stockmarkets plummeted partly on fears China and India appear to be slowing, the development bank remained cautiously positive.

“China not growing at 10 per cent is good news," Mr Nag said. “And India not growing at 9 per cent?

“Those sizzling rates were not sustainable . . . because growth at that level would have made such huge demands on natural resources the world over and burdened the capacity in their countries so much."

Despite developing Asia’s exposure to Europe and the United States, which together suck up almost a quarter of exports, ADB is forecasting a small rise in regional growth to 7.3 per cent next year.

IMF deputy managing director Naoyuki Shinohara warned the forum that “the region should not be complacent and should prepare for potential shocks".

For WTO director-general Pascal Lamy, East Asia was “doing better than the rest of the world but it is not immune" to US and European uncertainty, and a slowing Chinese economy. But he said the biggest risk was protectionism.

Mr Yudhoyono delivered a discourse that pleased his allies outside ASEAN, who fear the broader East Asia grouping is not always welcoming of “outside" players such as Australia.

“The new architecture is not limited to 10 Asian nations, but another eight countries – China, Japan, South Korea, India, Russia, United States, Australia and New Zealand," Mr Yudhoyono said.

Regarding Australian fears of a growth slowdown in Asia, Mr Nag said anxiety was “understandable in the short term".

“Australia [is] selling natural resources so what is happening to China and India is of concern.

“But China according to our projections will still grow at 8.5 per cent this year and 8.7 per cent next year and India at 7 per cent and 7.5 per cent," he said.

“Even if these were to temper down a bit these are still fairly robust rates. So I would not overreact."